If you are a company or an organisation which is small or medium sized (SME) you may be entitled to R&D tax credits, by way of a cash sum paid by HMRC (HM Revenue & Customs).
Are you a SME?
A SME is an organisation or a company which has less than 500 employees and does not exceed either of the following:
– the annual turnover is not greater than €100 million
– the balance sheet is not greater than €86 million
When considering the limits as stated above, you need to take into account whether there is a company which holds a 25% stake in your company as well as whether your company holds a 25% share in any other company.
What is the amount of R&D tax credit you can receive?
Previously the tax relief on allowable R&D costs stood at 200% of expenditure on the costs incurred. Or to put it another way, for every £100 spent on R&D, a company would have received £200 in tax credit.
However, this has recently changed – on the 1 April 2012 the rate was further increased to 225%.
It is important to keep in mind that if your company is indeed a SME and meets the following requirements as stated above, you can only receive tax credit if your company is a going concern – a business that functions without the intention or threat of liquidation for the foreseeable future. After making a claim and before any tax credit is paid, if your company ceases to be a going concern, you will not receive any tax credit as the HMRC will treat the claim as if it was never made.
Which R&D projects qualify for tax credits?
Your company will only be able to claim for R&D tax credits if the R&D project undertaken seeks to achieve an advance in the capability or overall knowledge in a field of technology or science through the resolution of technological and scientific uncertainty.
Which costs qualify for R&D tax credits?
If your company meet all the requirements outlined above, you will be able to claim tax credit on revenue expenditure in the following areas:
– Employee costs
This includes employees who are actively involved in carrying out R&D. The employees must be employed directly by your company and not by directors/staff, agency workers, or consultants whose employment contracts are with other companies.
These materials include transformable or consumable materials which are directly used in R&D. These include physical materials and not things like data costs or telecommunication costs.
– Volunteers for clinical trials
This include payment to the subjects involved in clinical trials
This includes any software which is directly used in the R&D process
This includes costs such as fuel, water, and power
– R&D expenditure which has been subcontracted
It is possible to claim back 65% of what is spent on R&D activities carried out by a subcontractor.
– Capital allowances
If you spend money on capital assets, it may be possible to claim capital allowances for R&D.
How can you claim R&D tax credits?
To claim R&D tax credits you need to put an “X” in Box 99 of your Company Tax Return, as well as putting the amount spent on R&D which will need to be multiplied by 225%. You should also include this figure in Box 3 (business profit) or Box 122 (business losses.)